CVB Financial Corp (CVBF) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the First Quarter 2015 CVB Financial Corp and its subsidiary Citizens Business Bank Earnings Conference Call. My name is Juda and I am your operator for today. At this time, all participants are in listen-only mode. (Operator Instructions) Later, we will conduct a question-and-answer period. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the presentation over to your host for today's call, Christina Carrabino. You may proceed.

Thank you, Juda, and good morning everyone. Thank you for joining us today to review our financial results for the first quarter of 2015. Joining me this morning are Chris Myers, President and Chief Executive Officer; and Rich Thomas, Executive Vice President and Chief Financial Officer.

Our comments today will refer to the financial information that was included in the earnings announcement released yesterday. To obtain a copy, please visit our website at www.cbbank.com and click on the Investors tab.

Before we get started, let me remind you that today's conference call will include forward-looking statements. These forward-looking statements relate to, among other things, current plans, expectations, events and industry trends that may affect the Company's future operating results and financial position. Such statements involve risks and uncertainties, and future activities and results may differ materially from these expectations.

The speakers on this call claim the protection of the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. For a more complete discussion of the risks and uncertainties that may cause actual results to differ materially from our forward-looking statements, please see the Company's Annual Report on Form 10-K for the year ended December 31st, 2014, and in particular, the information set forth in Item 1A, Risk Factors therein.

Now, I will turn the call over to Chris Myers.

Thank you, Christina. Good morning, everyone, and thank you for joining us again this quarter. Yesterday, we reported earnings of $15.8 million for the first quarter of 2015, compared with $25.6 million for the fourth quarter of 2014, and $28.7 million for the first quarter of 2014.

During the first quarter, we repaid a $200 million fixed rate advance from the Federal Home Loan Bank. The advance was scheduled to mature in November 2016 and carried an interest rate of 4.52%. The repayment of this advance resulted in a $13.9 million termination expense on a pre-tax basis. We made the repayment to the Federal Home Loan Bank to deleverage our balance sheet and reduce ongoing funding costs.

We no longer carry any FHLB debt and are projecting an overall cost of funds for the bank of 11 basis points to 12 basis points for the second quarter of 2015. We utilize cash reserves for the repayment. Despite utilizing $200 million in funds to repay the FHLB debt, we still provided $289 million in overnight funds to the Federal Reserve at quarter end. Earnings per share were $0.15 for the first quarter, compared with $0.24 for the fourth quarter, and $0.27 for the year-ago quarter.

The first quarter represented our 152nd consecutive quarter of profitability and our 102nd consecutive quarter of paying a cash dividend to our shareholders. Based on our strong capital position and the stability of our earnings, our Board of Directors elected to increase our first quarter's cash dividend from $0.10 per share to $0.12 per share.

Our tax equivalent net interest margin was 3.59% for the first quarter, compared with 3.58% for the fourth quarter of 2014, and down from 3.72% for the year-ago quarter. The overall yield on investment securities continue to decline; and we also continue to see competitive pressure on rates in all classes of loans, particularly commercial real estate secured loans. At March 31st, 2015, we had $3.72 billion in total net loan, compared with $3.82 billion in total loans at December 31st, 2014.

Our dairy and livestock loan portfolio decreased by $106.6 million from the fourth quarter of 2014 to the first quarter of 2015. We experienced our seasonal pay-downs from dairy customers who choose to defer revenue and/or drive down on their lines of credit during the fourth quarter to prepaid fee cost. Then, they choose to repay these borrowings during the first quarter of the following year.

Our new loan productivity for the first quarter was stronger than the year-ago quarter. Prepayment pressure on existing loans offset or improve loan production for the first quarter to produce a flat quarter in terms of overall loan growth, dairy loans aside. As part of our growth efforts, we recently hired a new team of bankers to lead our expansion into the southern portion of California's central coast markets.

Our newly hired six-person team has come together to form our new commercial banking center location in Oxnard, California. The Oxnard Commercial Banking Center represents an important and strategic expansion for the Bank into the Ventura County and Santa Barbara County market. We also hired a new team of bankers to continue to build out our Downtown Los Angeles Commercial Banking Center and are excited about their new business potential as well.

In terms of loan quality, non-performing assets, defined as non-accrual loans plus OREO, were $30.1 million for the first quarter of 2015, compared to $37.8 million for the prior quarter. The decrease was due to reductions of $6.5 million in non-performing commercial real estate loan, $1.4 million in commercial and industrial loans and $1 million in single-family residential mortgage loans. The allowance for loan and lease losses was $60.7 million or 1.63% of total loans at March 31st, 2015, compared with $59.8 million or 1.57% of total loans at December 31st, 2014.

Net recoveries for the first quarter were $884,000, compared with net recoveries of $243,000 for the fourth quarter of 2014. At March 31st, 2015, we had loans delinquent 30 to 89 days of $1.9 million or 0.05% of total loan. Classified loans for the first quarter totaled $129.2 million and decreased by over $30 million from the prior quarter. We will have more detailed information on classified loans available in our first quarter Form 10-Q.

Now, I'd like to discuss deposits. For the first quarter of 2015, our non-interest-bearing deposits increased to $3.13 billion, compared with $2.87 billion for the prior quarter, and $2.69 billion for the same quarter a year ago. This represents a $438.3 million or 16.3% increase year-over-year and a 9.1% increase quarter-over-quarter. Non-interest-bearing deposits now represent 53% of our total deposits, this is an all-time high. Our total cost of deposits and customer repurchase agreements of 11 basis points for the first quarter remain unchanged from the prior quarter. At March 31st, 2015, our total deposits and customer repurchase agreements were $6.46 billion, compared with $5.74 billion for the same period a year ago and $6.17 billion at December 31st, 2014. Our ongoing objective remains to maintain a low cost stable source of funding for our loans and securities.

Interest income; interest income for the first quarter of 2015 totaled $64.2 million, compared with $65.3 million for the fourth quarter of 2014. The $1.1 million quarter-over-quarter decline was primarily due to lower discount accretion and slightly lower investment income. Non-interest income was $8 million for the first quarter of 2015, compared with $9.9 million for the fourth quarter of 2014. The quarter-over-quarter decrease was primarily due to a $1.3 million decrease in gain on sale of OREO assets and loans.

Now expenses. We continue to closely monitor and manage our expenses. Non-interest expense for the first quarter was $44.5 million, compared with $31.3 million for the fourth quarter. The increase was principally due to the $13.9 million increase in debt termination expense resulting from the repayment of the $200 million FHLB fixed rate advance. Non-interest expense, excluding the impact of the debt termination expense, remained flat at 1.67% of average assets for the first quarter, compared with the fourth quarter.

Now, I would like to turn the call over to Rich Thomas, our CFO, to discuss our effective tax rate, investment portfolio and overall capital position. Rich?

Thanks, Chris. Good morning, everyone. Our effective tax rate was 35.5% for the first quarter, compared to 35.7% for the prior quarter. Our effective tax rate varies depending upon tax-advantaged income as well as available tax credits.

Now to our investment portfolio. During the first quarter of 2015 we sold approximately $227 million in overnight funds to the Federal Reserve and received a yield of approximately 25 basis points on collective balances. We also maintained an average of $26.3 million in short-term CDs, with other financial institutions yielding approximately 86 basis points.

At March 31st, 2015, investment securities totaled $3.03 billion, down $108.9 million from the fourth quarter of 2014. We elected not to purchase any mortgage-backed securities in the first quarter as net yields were well under 2% from these investments. Investment securities represented 40.71% of our total assets at quarter end, down from 42.54% for the prior quarter.

At March 31st, 2015, we had an unrealized gain of $73.8 million in our total investment portfolio, compared to an unrealized gain of $53.6 million for the prior quarter. Virtually all of our mortgage-backed securities are issued by Freddie Mac or Fannie Mae, which have the implied guarantee of the US government.

We continue to monitor the interest rate environment carefully weighing current rates and overall interest rate risk. During the first quarter we did purchase $4.3 million in municipal securities with an average tax equivalent yield of about 3.89%. But again, we elected not to purchase any mortgage-backed securities due to the low yields. Despite the continuing low interest rate environment, prepayment speeds in our investment portfolio appear to have somewhat stabilized; and based upon current interest rates, we anticipate receiving approximately $35 million in monthly cash flows from our portfolio. However, if rates remain low, we may see faster prepayment speeds, which could increase our estimated monthly cash flows.

Now turning to our capital position. Our capital ratios are well above regulatory standards and we believe they still remain above our peer group average. Our March 31st, 2015 capital ratios will be released soon concurrently with our year-end Form 10-Q.

Shareholders' equity increased by $19 million to $897.1 million for the first quarter. The quarter-over-quarter increase was due to an increase of $15.8 million in net earnings and $11.7 million increase in unrealized gain on available-for-sale investment securities and $4.2 million of various stock-based compensation items. This was offset by $12.7 million in cash dividends.

I will now turn the call back to Chris for some closing remarks.

Thanks, Rich. Now let's talk about economic conditions. In terms of the dairy industry, milk future prices are declining. A year ago, dairy farmers were struggling to keep up with global demand and milk prices were significantly higher. Milk prices have now fallen in part due to China's stockpiling of milk powder and Russia's trade sanctions against the United States. According to the California Department of Food and Agriculture, feed costs in California represented 61% of total milk production cost for the fourth quarter of 2014, down from 62.2% of total milk production cost for the third quarter.

It remains difficult, however, to project the future cost of feed as feed cost continue to be depended upon many factors, one of which of course is weather. California's agricultural sector has so far weathered the drought. Notwithstanding, the drought currently shows no sign of receding and water supplies are dropping. We are watching the drought situation closely; and as of yet, have seen little effect on the repayment of our loan.

Despite the drought, the farm sector has prospered over the past few years. Farmers have benefited greatly from rising global food demand, which has led to larger profit margins. However, it remains uncertain whether this profit trend can continue given the overall water situation.

Turning to other items related to the California economy, according to various economic reports. The California's Employment Development Division reported the unemployment rate was 6.5% in March 2015, compared with 6.7% in February 2015, and 7.9% back in March 2014. Unemployment is expected to dip below 6% by late 2016. Virtually every aspect of the state's economy is improving. Jobs are up, home prices are rising, new construction activity is occurring across the state, California remains the top tourist destination, and businesses and consumers are still driving growth in spending.

The Inland Empire, where our Bank is headquartered, has become California's fastest growing region and is poised for further expansion over the next few years. Manufacturing and logistics are two industries that are benefiting from the Inland Empire's rebound.

In closing, we are pleased with our first quarter financial results. The decision to deleverage our balance sheet puts us in a position where we can compete with the larger banks on price for quality loans if we so choose. We remain focused on quality loan growth, fee income expansion, continue strong core deposit and overall operating efficiency.

We believe in our organic growth strategy and will strive to augment our core growth with strategic acquisitions where achievable. We set our objectives and strategies with a long-term perspective and are committed to continuing to build our company in a way that withstand the test of time.

And that concludes today's presentation, and now Rich and I will be happy to take any questions that you might have.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Aaron Deer, Sandler O'Neill & Partners.

Hey, good morning, everyone.

Good morning.

Good morning, Aaron.

Chris, congratulations on picking up some of these new teams. I'm curious, how many folks were added with the LA team and did you add any new folks as well down in San Diego? And then related to that, what kind of incremental cost should we be looking for with these new hires and what kind of production ramp should we expect?

Yes. I don't know if I might know exactly what the ramping is, but I can just give you a feel for that. We have six people in San Diego, most of those people were hired in the early to mid-part or actually the early part of 2014. So they've been on-board for almost a year now, most of those six people. So San Diego, six people.

LA is, we've hired three new people in Los Angeles, and then we've hired six new people in the Oxnard Commercial Banking Center, which is our Ventura County, Santa Barbara County. Typically, the run rate -- I'll give you, the run rate on Oxnard, the Oxnard Commercial Banking Center is about $100,000 a month negative expense, maybe a little less than that coming out of the blocks; and then every deal they're putting on, particularly on the loan side, not so much the deposit side because we have such strong funding, tends to offset that and diminish that cost over time.

So the run rate on that is a little less than $100,000 a month and we feel like it's going to decline pretty quickly, their pipeline is really strong and we've already got some deals that are committed to us. We just haven't got them on the books yet. Remember, they only started in January and February. So that is a very quick ramp up. We think there's a lot of business that's going to move over there. I don't want to give you a number, but I'm hoping that there -- with -- what happens -- if what I think happens, I think they'll be breakeven by the end of the year, which is used -- which is about 6 months to 12 months earlier than we normally anticipate with a new team. Usually it takes 18 to 24 months to reach breakeven for a team, and that's probably what it's going to take San Diego. San Diego's put some totals on and we expect them to be breakeven by the end of the year as well.

The LA is really more just an add-on of three new people, the expenses were already embedded in there. So -- and they have got good pipelines as well. So, I'm very encouraged by these three teams and also we've got our people in our 44 other locations that are working pretty hard too. One of the challenges we have is pressure on loan prepayments; and we mentioned that in our press release, it's a battle out there.

The big banks, in particular, are dropping rates to try to gain market share. I looked at the earnings releases of some of the big banks, which I will not name; and you go look at their net interest margin and they're going to all-time lows of where their net interest margin is; and that just means they're out there competing on rate in the market, which is very discouraging to me. So we played a lot of defense.

Our prepayment penalties were the largest that we've had for a quarter in the history of CVB in the first quarter of 2015. So, that gives you flavors to the battle that were out there between the loans, now a lot of those loans were keeping and we're charging prepayment penalties or discounting their prepayments by 20% to keep them or something like that depending on the situation. But it's a battle and we're playing as much deep as we are often.

So I guess given that and recognized it was pretty tough operating environment, do you have a sense of how -- what you're looking for in terms of net loan growth and for the year relative to the kind of performance that you had last year?

Well, let's walk -- let's look at the year-over-year performance and then we'll talk about what we're going to do (inaudible) first. Year-over-year, our loans grew by 9.2%. Now, that's somewhat deceptive -- this is from March 31st, 2014 to March 31st, 2015. Now, that's a little deceiving, because American Security Bank contribute about 7% of those loans and our organic growth was a little over 2%. So 2% is not our objective. Our annual growth rate that we're striving to achieve is 8% organically. So we're trying to get to that 2% per quarter and we haven't been able do that over the last year, mostly because of prepayment fees. Our loan production has been pretty good. In fact, this first quarter was markedly better than the first quarter of 2014, I mean, much, much better than it was a year ago. So that's a good sign, but the prepayment pressure is strong.

If you look at other categories, our non-interest-bearing deposits were up 16% year-over-year, of which 7% was due to American Security Bank and 9% was organic growth from Citizens Business Bank. So 9% non-interest-bearing growth, we're really pleased with that. We can grow non-interest-bearing deposits 9% a year, I'll say thank you very much organically. And then total deposits were up 15.4%, and then about 8% was Citizens Business Bank, the other 7% or 7.4% was American Security Bank.

Now, remember this also on the loan side. We've done zero loan participation in the last seven years. We haven't purchased any loan in the last seven years other than through acquisition. We're sticking to our core lending activities and we're really trying to be smart about what we do and we use three phrases that we use all the time when we're looking at loans or looking at new business or looking at anything in the organization.

We ask ourselves is what we're doing scalable, is what we're doing repeatable, and is what we're doing transparent. And scalable basically means as we do more and more of this, are we going to create efficiencies for ourselves and make more money in a positive way that we can continue to grow and expand and be more profitable.

Repeatable means we don't want to do one-off things. I mean, if we're going do one of these, we should want to do 50 of these. So let's not do an exception here, an exception there, let's do something that's repeatable. And the last thing is transparency. Transparency basically means that when we look at this from our perspective, from our investors' perspective, from the regulators' perspective, does it all make sense? Is it transparent to all of us that this is a good business practice? So that's what we are doing.

That's great. Those are all good points, Chris. I appreciate you taking my questions.

Yes, thanks.

Gary Tenner, D.A. Davidson.

Good morning, guys, two quick questions; one on asset quality. Obviously, the trends there remain very good. Do you have any sort of visibility into ongoing recoveries the next couple of quarters?

It's hard to say that. I can tell you that our net recovery was about $885,000 for the first quarter. I'm very optimistic that this year we will have a net recovery, no promises of course, but a net recovery for the year of 2015. We have a lot of marks on our loans in the portfolio that we feel where loans have been marked and the environment has improved that the back-end of these loans, when they mature and come due, that we're going to have recoveries.

And that will -- and most of those recoveries will occur over the next three years. So we feel like that's a good tailwind for us. That kind of leads also into a little bit of our reserve and where we sit with our reserve, and we're 1.63% at the end of the quarter here, which was up a little bit because of our net recovery and because of the fact that our loans were down $100 million quarter-over-quarter, which that $100 million was really attributable to vast, vast majority of that was attributable to the seasonal dairy loans resetting themselves. So a lot of that's going to -- a potential reserve release. There is some potential to do that in 2015, but I'm really hoping that doesn't occur and I'm hoping that doesn't occur because we're growing loans 2% a quarter organically, that remains to be seen what will happen.

Okay, thanks for that. And then just on the expense line, on the personnel line, sequentially lower in what's typically a kind of seasonally heavier quarter. Can you remind us if there was something unusual in the fourth quarter in terms of catch-up accruals or anything that hit that line?

Yes, we had a little headwind in terms of our medical benefits. Right, Rich?

That's correct, Chris.

Yes, and I think it was about $0.5 million-ish, that was a little bit of -- we had -- our medical benefits were not as bad as we thought they would be, by a $0.5 million in the first quarter. So other than that, it's kind of business as usual.

Okay, thanks very much.

(Operator Instructions) Julianna Balicka, KBW.

Are you there, Julianna?

Julianna? Julianna, you might have your phone on mute.

Sorry about that, the mute button. Hello, can you hear me now?

Yes.

Yes. Sorry about that. Good morning. I just wanted to touch on a couple of points. One, to Richard's comment about not purchasing MBSs in the first quarter, could you comment about what you're seeing quarter-to-date and your plans for the rest of this quarter assuming things don't change and how you think about your investment securities portfolio and redeployment when rates start to rise gradually if and when?

That was a big part of our decision to pay back the $200 million in the first quarter to the FHLB. Our strong deposit growth is -- and our flat loan growth, if you will, our flat real net loan growth, when we take the dairy out, is -- has provided us with a lot of cash. I mean, we're at $289 million of providing funds the overnight to the Federal Reserve at the end of the quarter; and that's after we prepay the FHLB debt for $200 million.

The problem is that the stuff that we've been buying, the 15 -- and Rich, you have in here which you think make sense, but what we've been buying on the mortgage-backed security stuff or will be bought in 2014 with mostly 15-year season paper with an average duration of 4 years to 4.5 years. Is that right, Rich?

That's correct.

And so, when we look at those yields, we were buying those with net yields of over 2%; and now those net yields are running like 160, 170, it's 50 basis points lower on average than it was five or six months ago, that's a big 50 basis points for us. So we're trying to -- right now, we're trying to hold off on buying those lower securities in the absence of loan growth, which we're hoping to get with a thought that if interest rates do go up, we're better keeping our powder dry and then redeploying those into securities if we need to maybe later in the year when rates are better.

Okay, very good. And so quarter-to-date, so for this quarter, I mean, not much changes, we should look for more build-up of liquidity?

Potentially. We're looking at other options of what we want to do. We just haven't -- we haven't figured this, what we're going to do on this. And in the absence of that, I think, we'll probably here on being conservative and keep money and going to be over, that will potentially impact our earnings in terms of our investment income.

You saw that quarter-over-quarter we were down by about $100 million in our investment portfolio. That's really a function of what Rich said earlier that we have run-off of about $35 million, 35 times three is $105 million and we bought $4 million in municipal securities and there you go.

Right, right. So maybe you can elaborate a little bit more on the options you're considering, I mean, are you thinking about special dividends or anything like that?

No, we did just increase our dividend from $0.10 a share to $0.12 a share.

Then why it's not there?

I'm sorry, why it's not there?

Why it's not there?

Well, again, we talked about what we want to do is sustainable and repeatable transparent. I think a 3% dividend on our stock is a healthy stock dividend put in the marketplace today. Again, we're looking out for acquisition potentials out there as well. So we want to keep our capital powder dry, again, it's not growing as quickly as we'd like, but there are opportunities out there, it's just a question of buying the right bank at the right price.

Got it. And yes, the 3% dividend is very healthy. I was trying to make little jokes, I apologize for that. And in terms of -- if I could switch topics on the question on expenses, in terms of infrastructure investment and building up the bank as you grow bigger and updating any back-office or front-office systems, updating any regulatory compliance systems; could you talk about and give us just more color as to what kind of investments you have been making or are going to be making in the near future or where you stand that area?

Yes, we're spending more money on technology than we have in the past. And -- but we expect that our occupancy expenses will moderate and may even drop in 2015 from 2014. So really what that means is that we're transitioning some of the savings that we're getting on the brick and mortar side over into technologies, just because that's the way our customers want to do business with us.

So one of the things that we're very focused on is, who our target client is and who our target client is not; and I talked about that a little earlier about what we're doing and what we're not doing. But our average checking account balance -- our average balance for checking account is over $115,000 in this bank. Eight years ago we had about 45,000 checking accounts in the bank, today we have about 45,000 checking accounts in the bank as well.

So we really haven't increased the number of checking accounts. What we've done is increased the average balance per checking account. So we're after that small to medium-size privately-held business and the business owner and we're not a retail consumer bank, we're not a Fortune 1000 bank, we're really focused on what our market is and who we are and also focused on who is hot.

And so that average checking account balance is very important to us, and helps create that operating efficiency that you see that we've been running around 45%. The average checking -- average balance in a checking account across the United States is somewhere around 4,500 and ours is 115,000.

Excellent. And then when we think of -- when we look out in the next two or three years, are there any updates that you will be implementing like in terms of BSA systems or online, where you just talked about technology, but it's more back-office stuff like BSA et cetera that some other banks have already been implementing. So are yours recently implemented or do you have five more years on them?

We've got -- in terms of all the kind of the regulatory environment and technology -- and how that relates to technology, we are in a position where we're using more outside people to help us get to where we needed to be, whether that's the COSO 2013, whether it's Dodd-Frank, whether it's us approaching $10 billion in assets that we got to start preparing ourselves for that. So those costs are going up and our vendor costs are going up in regard to that.

But again, I think that there is -- as we get more efficient on the brick and mortar side, we're able to transition some of those dollars that we're saving on brick and mortar into doing those same things that we're talking about.

But yes, the environment right now is you got to spend more money on the transparency aspect of what we're doing, whether it's BSA, AML, whether it's COSO 2013, Dodd-Frank, et cetera, et cetera, et cetera.

Very good. Thank you very much.

(Operator Instructions) Aaron Deer, Sandler O'Neill & Partners.

Hi, guys. Just two quick follow-ups. One is, Chris, did I hear you correctly at the beginning of the call, you mentioned that you expected a 11 basis points to 12 basis points benefit from the full quarter run rate on the FHLB pay downs?

No. What I said was that, I thought that our total cost of funds for the bank would be 11 basis points to 12 basis points for the second quarter of 2015.

Okay. So I did miss you.

(inaudible) on that.

Okay.

Our total cost of funds for the first quarter was 20 basis points.

Okay. Thank you for clarifying that. And then, Rich, just want to check -- make sure that the effective tax rate that you had in the first quarter, is that a good run rate for the full-year?

We try and estimate the best we can, what we anticipate on earnings as well as on the tax-advantaged income for the year. Right now we think that 35.5% is a pretty good estimate for what we anticipate for the year 2015.

Okay, perfect. Thanks, guys.

Don Worthington, Raymond James.

Good morning.

Good morning.

I just had a question on the DDA balances, non-interest-bearing were up, I guess, about $260 million linked-quarter. Was that -- do you have some new relationships there, or are these basically existing accounts that were increasing their balances during the quarter?

On a point-to-point basis -- that's a great question, Don. On a point-to-point basis, it was up whatever $260 million; but that's a little deceptive, because we had about $100 million on the last day of the year in 2014, our non-interest-bearing deposits go up. We had some large escrows and so forth and things closed right before the end of the year.

So, our December 31st, 2014 numbers were really, in real terms, should have been $100 million higher, so that it grows quarter-over-quarter, I'd take $100 million out of the non-interest-bearing side of that. But now we brought in some new business, we're a pretty efficient machine on gathering deposits in the bank, and I'm trying to get that greatness that we have with deposit gathering and transition that into the loan side as well; and we just haven't been successful on the loan side, but I think our ability to grow deposits over the past half a dozen years has been phenomenal. And when I joined the bank eight years ago, we had $2.1 billion in Federal Home Loan Bank debt, and we paid all of that debt back through deposit growth is what it really has driven it. So we're very proud of that and we're very proud of where we situated, to compete even with the big banks from a cost of funds perspective. And I think that's really important from a strategic standpoint because in today's market, you can't take a lot of risk. With these low interest rates, you can't take a lot of lending risk, you've got to be right.

So you got to compete for the A paper out there; and to compete with the big banks to the A paper you better have a low cost of funds that's real low, that's sustainable. I hope interest rates go up, because I think our deposits are very sticky. We look at that a lot, we don't like large personal consumer deposits, because we look at those as being the first thing to leave the bank when rates start going up and they find alternative to get higher interest rate.

Okay, great. Thank you.

Juliana Balicka, KBW.

Thank you. I have a follow-up. In terms of the competition, Chris, that you've been discussing throughout the call, I've two questions. One, is there a linked-quarter or maybe even couple of quarters noticeable change in terms of how competitive the national banks are being; and two, given the struggle to maintain prepayments, are there particular categories of your loans niches, verticals of C&I or property types for geographies that are subject to more competitive pressure than others?

Yes, I think what I've seen and I don't know the statistics for the big banks linked-quarter-over-quarter or that, I just -- I can just feel in the marketplace. What we're seeing is this, we're seeing more and more banks go further out in terms of amortization and further out in terms of what they're willing to do to fixed interest rates for longer periods of time; and that concerns me in the sense that we get competition where we're seeing loans, particularly commercial real estate loans, if you ask for one area where I've seen the big banks get more competitive on is commercial real estate loan; whether that's office or industrial or retail or multi-family, we've seen they get even more aggressive there.

And so, when we look at that, we have to make decisions along the way of just how relationship-oriented some of these loans are. If they are relationship-oriented, we're going to compete on rate and we're going to go toe-to-toe with them, because a lot of times the deposits are materially funding that loan albeit indirectly.

But if it's a transactional loan and you're fixing it at a low fixed interest rate for 10 years on a 25-year amortization, sometimes we choose not to compete on that, on those loans; and say, listen, we're not going to lend money out at sub 4% fixed for 10 years if they amortize over 30 years. It's just hard to take that interest rate risk on a transaction as opposed to a real relationship.

Okay. That makes sense. Thank you.

(Operator Instructions) At this time, there are no more questions. So I would like to turn the call back over to Mr. Myers. Please go ahead.

Yes. Thank you very much for joining us this quarter on our call and we appreciate your interest and look forward to speaking with you again on our Second Quarter 2015 Earnings Conference Call in July. In the meantime, feel free to contact me or Rich Thomas. Have a great day. Thank you very much.